SEC Proposes Crypto Asset Rules Amid Decentralization Push

The US Securities and Exchange Commission (SEC) has proposed new rules for the crypto industry. The 'Regulation Crypto Assets' proposal, issued on August 18, provides specific guidance for cryptocurrencies grouped under securities or investment contracts.

According to the SEC, crypto tokens are considered securities if investors purchase them expecting to make returns from the efforts of a central team (the Howey test). However, this rule presents challenges for many crypto startups in terms of filing, disclosure, and audit requirements.

To address these issues, the SEC has granted a 'safe harbour' or window of exceptions to the 1933 Securities Act. Crypto projects can raise capital without standard registration if they comply with certain requirements.

The proposal limits fundraising for small startups to $5 million over four years for a one-time offer, while large-scale projects are limited to $75 million over one year with mandatory financial audits and detailed reports.

Startup teams must provide 'principles-based narrative disclosures' outlining the project's source code, structure, tokenomics, roadmap, and core team in plain English. Standard anti-fraud and anti-manipulation provisions apply.